While elevated inflation weighed on consumer spending in the first half of 2018, a modest
recovery in spending growth is in the pipeline. As the labour market continues to tighten, wage growth will rise further. And although the fall back in inflation has stalled in recent months thanks to higher energy prices, we still expect inflation to gradually decline over the next year or so. Of course, the inflationary impact of a “no deal” Brexit would put a stop to any recovery in spending growth. But as long as a Brexit deal is struck, as we are assuming, we think that consumer spending growth will pick up from a likely 1.2% in Q2 this year to about 2.0% in both 2019 and 2020.
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